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Swiss sight deposits increase showing possible central bank activity
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ZURICH (Reuters) – Sight deposits held by the Swiss National Bank increased by 1.7 billion Swiss francs ($1.80 billion) last week, data showed on Monday, indicating the central bank could be intervening in the market to slow the franc’s surge in value.
ZURICH (Reuters) – Sight deposits held by the Swiss National Bank increased by 1.7 billion Swiss francs ($1.80 billion) last week, data showed on Monday, indicating the central bank could be intervening in the market to slow the franc’s surge in value.
Total sight deposits held by the SNB increased to 751.28 billion francs from 749.61 billion francs a week earlier, according to bank data.
The rise followed a 2.5 billion franc increase a week earlier.
An increase can indicate the SNB is active in the currency markets, buying foreign currencies from commercial banks in exchange for newly created francs, thereby increasing their sight deposit accounts.
Analysts said the increase could represent a small return to the market to slow the recent appreciation of the Swiss franc, which has risen to 0.9646 francs to the euro, its highest level since January 2015.
The SNB has said it is prepared to tolerate a stronger franc, which keeps a brake on Swiss inflation by keeping import prices down, but it will also act if the currency became too weak or too strong.
The central bank declined to comment on Monday.
“Looking at this weeks and last week’s rise in sight deposits there is indeed the possibility of interventions to slow the rise in the Swiss franc,” said UBS economist Alessandro Bee.
“However, I don’t think that the SNB is ready to put a floor on EURCHF at this level, which would imply massive interventions,” added Bee, who said stronger interventions were an option if the exchange rate went to 0.95 francs to the euro.
Maxime Botteron, an economist at Credit Suisse, said it was currently difficult to determine the SNB’s actions due to it providing liquidity to commercial banks through repurchase agreements (repos).
“Any FX purchases remain unlikely with the current level of inflation. As long as inflation remains elevated, I see very little chance for the SNB to buy foreign currencies,” Botteron said.
($1 = 0.9463 Swiss francs)
(Reporting by John Revill; Editing by Alison Williams)
A central bank is a financial institution that manages a country's currency, money supply, and interest rates. It oversees monetary policy and regulates the banking system to ensure financial stability.
Foreign currency refers to the money used in countries other than one's own. It is often traded in foreign exchange markets and can be used for international transactions.
Monetary policy is the process by which a central bank controls the supply of money, availability of credit, and interest rates to achieve economic objectives such as controlling inflation and stabilizing currency.
Currency hedging is a financial strategy used to protect against potential losses due to fluctuations in exchange rates. It involves using financial instruments like options or futures contracts.
Sight deposits are funds held in bank accounts that can be withdrawn on demand without any notice. They are typically used for everyday transactions and are a key component of a bank's liquidity.
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